LORENZO SHIPPING CORP. v.

CHUBB

Facts:

On November 21, 1987, Mayer Steel Pipe Corporation of Binondo, Manila, loaded 581 bundles of ERW black steel
pipes worth US$137,912.84[4] on board the vessel M/V Lorcon IV, owned by petitioner Lorenzo Shipping, for
shipment to Davao City. Petitioner Lorenzo Shipping issued a clean bill of lading designated as Bill of Lading No.
T-3[5] for the account of the consignee, Sumitomo Corporation of San Francisco, California, USA, which in turn,
insured the goods with respondent Chubb and Sons, Inc.[6]

The M/V Lorcon IV arrived at the Sasa Wharf in Davao City on December 2, 1987. Respondent Transmarine
Carriers received the subject shipment which was discharged on December 4, 1987, evidenced by Delivery Cargo
Receipt No. 115090.[7] It discovered seawater in the hatch of M/V Lorcon IV, and found the steel pipes submerged
in it. The consignee Sumitomo then hired the services of R.J. Del Pan Surveyors to inspect the shipment prior to
and subsequent to discharge. Del Pan's Survey Report[8] dated December 4, 1987 showed that the subject
shipment was no longer in good condition, as in fact, the pipes were found with rust formation on top and/or at
the sides. Moreover, the surveyor noted that the cargo hold of the M/V Lorcon IV was flooded with seawater, and
the tank top was "rusty, thinning, and with several holes at different places." The rusty condition of the cargo was
noted on the mate's receipts and the checker of M/V Lorcon IV signed his conforme thereon.[9]

After the survey, respondent Gearbulk loaded the shipment on board its vessel M/V San Mateo Victory, for
carriage to the United States. It issued Bills of Lading Nos. DAV/OAK 1 to 7,[10] covering 364 bundles of steel
pipes to be discharged at Oakland, U.S.A., and Bills of Lading Nos. DAV/SEA 1 to 6,[11] covering 217 bundles of
steel pipes to be discharged at Vancouver, Washington, U.S.A. All bills of lading were marked "ALL UNITS
HEAVILY RUSTED."

While the cargo was in transit from Davao City to the U.S.A., consignee Sumitomo sent a letter[12] of intent dated
December 7, 1987, to petitioner Lorenzo Shipping, which the latter received on December 9, 1987. Sumitomo
informed petitioner Lorenzo Shipping that it will be filing a claim based on the damaged cargo once such damage
had been ascertained.

On January 17, 1988, M/V San Mateo Victory arrived at Oakland, California, U.S.A., where it unloaded 364
bundles of the subject steel pipes. It then sailed to Vancouver, Washington on January 23, 1988 where it
unloaded the remaining 217 bundles. Toplis and Harding, Inc. of San Franciso, California, surveyed the steel
pipes, and also discovered the latter heavily rusted. When the steel pipes were tested with a silver nitrate solution,
Toplis and Harding found that they had come in contact with salt water. the consignee Sumitomo rejected the
damaged steel pipes and declared them unfit for the purpose they were intended.
The Regional Trial Court ruled in favor of the respondent Chubb and Sons, Inc., finding that: (1) respondent
Chubb and Sons, Inc. has the right to institute this action; and, (2) petitioner Lorenzo Shipping was negligent in
the performance of its obligations as a carrier. The Court of Appeals likewise denied petitioner Lorenzo Shipping's
Motion for Reconsideration.

Issues:
(1) whether respondent Chubb and Sons has capacity to sue before the Philippine courts; and,
(2) whether petitioner Lorenzo Shipping is negligent in carrying the subject cargo.

Ruling:

This Court held that "one single or isolated business transaction does not constitute doing business within the
meaning of the law. Transactions which are occasional, incidental, and casual not of a character to indicate a
purpose to engage in business do not constitute the doing or engaging in business as contemplated by law. Where
the three transactions indicate no intent by the foreign corporation to engage in a continuity of transactions, they
do not constitute doing business in the Philippines.
Furthermore, respondent insurer Chubb and Sons, by virtue of the right of subrogation provided for in the policy
of insurance,[34] is the real party in interest in the action for damages before the court a quo against the carrier
Lorenzo Shipping to recover for the loss sustained by its insured. Rule 3, Section 2 of the 1997 Rules of Civil
Procedure defines a real party in interest as one who is entitled to the avails of any judgment rendered in a suit,
or who stands to be benefited or injured by it. Where an insurance company as subrogee pays the insured of the
entire loss it suffered, the insurer-subrogee is the only real party in interest and must sue in its own name[35] to
enforce its right of subrogation against the third party which caused the loss. This is because the insurer in such
case having fully compensated its insured, which payment covers the loss in full, is subrogated to the insured's
claims arising from such loss. The subrogated insurer becomes the owner of the claim and, thus entitled to the
entire fruits of the action.[36] It then, thus possesses the right to enforce the claim and the significant interest in
the litigation.[37] In the case at bar, it is clear that respondent insurer was suing on its own behalf in order to
enforce its right of subrogation.

The steel pipes, subject of this case, were in good condition when they were loaded at the port of origin (Manila) on
board petitioner Lorenzo Shipping's M/V Lorcon IV en route to Davao City. Petitioner Lorenzo Shipping issued
clean bills of lading covering the subject shipment. A bill of lading, aside from being a contract[38] and a
receipt,[39] is also a symbol[40] of the goods covered by it. A bill of lading which has no notation of any defect or
damage in the goods is called a "clean bill of lading."[41] A clean bill of lading constitutes prima facie evidence of
the receipt by the carrier of the goods as therein described.[42]
The case law teaches us that mere proof of delivery of goods in good order to a carrier and the subsequent arrival
in damaged condition at the place of destination raises a prima facie case against the carrier.[43] In the case at
bar, M/V Lorcon IV of petitioner Lorenzo Shipping received the steel pipes in good order and condition, evidenced
by the clean bills of lading it issued. When the cargo was unloaded from petitioner Lorenzo Shipping's vessel at
the Sasa Wharf in Davao City, the steel pipes were rusted all over. M/V San Mateo Victory of respondent
Gearbulk, Ltd, which received the cargo, issued Bills of Lading Nos. DAV/OAK 1 to 7 and Nos. DAV/SEA 1 to 6
covering the entire shipment, all of which were marked "ALL UNITS HEAVILY RUSTED.
There can be no other conclusion than that the cargo was damaged while on board the vessel of petitioner
Lorenzo Shipping, and that the damage was due to the latter's negligence. In the case at bar, not only did the legal
presumption of negligence attach to petitioner Lorenzo Shipping upon the occurrence of damage to the cargo.[44]
More so, the negligence of petitioner was sufficiently established. Petitioner Lorenzo Shipping failed to keep its
vessel in seaworth
The twenty-four-hour period prescribed by Art. 366 of the Code of Commerce within which claims must be
presented does not begin to run until the consignee has received such possession of the merchandise that he may
exercise over it the ordinary control pertinent to ownership.[51] In other words, there must be delivery of the cargo
by the carrier to the consignee at the place of destination.[52] In the case at bar, consignee Sumitomo has not
received possession of the cargo, and has not physically inspected the same at the time the shipment was
discharged from M/V Lorcon IV in Davao City. Petitioner Lorenzo Shipping failed to establish that an authorized
agent of the consignee Sumitomo received the cargo at Sasa Wharf in Davao City. Respondent Transmarine
Carriers as agent of respondent Gearbulk, Ltd., which carried the goods from Davao City to the United States, and
the principal, respondent Gearbulk, Ltd. itself, are not the authorized agents as contemplated by law. What is
clear from the evidence is that the consignee received and took possession of the entire shipment only when the
latter reached the United States' shore. Only then was delivery made and completed. And only then did the 24-
hour prescriptive period start to run.

Finally, we find no merit to the contention of respondents Gearbulk and Transmarine that American law governs
the contract of carriage because the U.S.A. is the country of destination. Petitioner Lorenzo Shipping, through its
M/V Lorcon IV, carried the goods from Manila to Davao City. Thus, as against petitioner Lorenzo Shipping, the
place of destination is Davao City. Hence, Philippine law applies.
S
Samar Mining Co. vs Nordeutscher Lloyd Case Digest
Samar Mining Co., Inc. vs. Nordeutscher Lloyd
(132 SCRA 529)

Facts: Samar Mining imported 1 crate optima welded wire (amounting to around USD 424 or PhP 1,700) from
Germany, which was shipped on a vessel owned by Nordeutscher Lloyd (M/S Schwabenstein). The shipment was
unloaded in Manila into a barge for transshipment to Davao and temporarily stored in a bonded warehouse owned
by AMCYL. The goods never reached Davao and were never delivered to or received by the consignee, Samar
Mining Co.

CFI ruled in favor of Samar Mining holding Nordeutscher Lloyd liable. However, defendants may recoup whatever
they may pay Samar Mining by enforcing the judgment against third party defendant AMCYL.

Issue: Whether Nordeustscher Lloyd is liable for the loss of the goods as common carrier?

Held: No. At the time of the loss of the goods, the character of possession of Nordeutscher Lloyd shifted from
common carrier to agent of Samar Mining Co.

The Bill of Lading is serves both as a receipt of goods and is likewise the contract to transport and deliver the
same as stipulated. It is a contract and is therefore the law between the parties. The Bill of Lading in question
stipulated that Nordeutscher Lloyd only undertook to transport the goods in its vessel only up to the port of
discharge from ship, which is Manila. The Bill of Lading further stipulated that the goods were to be transshipped
by the carrier from Manila to the port of destination – Davao. By unloading the shipment in Manila and delivering
the goods to the warehouse of AMCYL, the appellant was acting within the contractual stipulations contained in
the Bill of Lading.

Article 1736 of the Civil Code relives the carrier of responsibility over the shipment as soon as the carrier makes
actual or constructive delivery of the goods to the consignee or to the person who has a right to receive them.

Under the Civil Code provisions governing Agency, an agent can only be held liable in cases where his acts are
attended by fraud, negligence, deceit or if there is a conflict of interest between him and the principal. Under the
same law an agent is likewise liable if he appoints a substitute when he was not given the power to appoint one or
otherwise appoints one that is notoriously incompetent or insolvent. These facts were not proven in the record.
 G.R. No. L-14078 February 24, 1961

MINDANAO BUS COMPANY, petitioner, vs.THE COLLECTOR OF INTERNAL REVENUE, respondent.

LABRADOR, J.:

Appeal by certiorari from a decision of the Court of Tax Appeals, ordering the petitioner-appellant Mindanao Bus
Company to pay P15,704.16, as documentary stamp taxes for the period from January 1, 1948 up to September
16, 1953. The decision sought to be reviewed modifies an assessment by the Collector of Internal Revenue
eliminating the compromise penalty imposed by the Collector.

Petitioner is a common carrier engaged in transporting passengers and freight by means of auto-buses in
Northern Mindanao, under certificates of public convenience issued by the Public Service Commission. Sometime
in September, 1953, an agent of the respondent Collector of Internal Revenue examined the books of accounts of
the petitioner and found that the freight tickets used by it do not contain the required documentary stamp tax.
Said agent took with him 500 booklets of tickets used by the petitioner and counted the freight receipts contained
therein. He counted 1,305 freight tickets. Assuming that each freight ticket covers baggage valued at more than
P5.00, the Collector of Internal Revenue, upon recommendation of the agent, assessed against the petitioner the
sum of P15,704.16, exclusive of compromise penalty, as documentary stamp taxes from January 1, 1948 up to
September 16, 1953.

The assessment of the Collector was appealed to the Court of Tax Appeals. In that court the respondent Collector
was declared in default and the petitioner presented its evidence. The tax court, modified the decision of the
Collector and ordered the petitioner to pay only P15,704.16 as documentary stamp tax for the period above-stated,
without any compromise penalty. Upon petitioner's motion for reconsideration, the court resolved to reopen the
case, for the sole purpose of allowing the petitioner to present as evidence the 500 booklets and 17 sackful,
respectively, of passenger and freight tickets of the petitioner. During the rehearing of the case, the petitioner,
however, failed to submit the said evidence; instead it presented stub tickets, Exhibits "X-1" and "X-2, which were
already in its possession during the first hearing. The Court of Tax Appeals denied the motion for reconsideration.
Hence, this appeal.

In this Court, petitioner-appellant presents the following assignments of error:

I. THE TAX COURT ERRED IN PRESUMING THE CORRECTNESS OF THE ASSESSMENT, AND IN NOT FINDING
SAME NOT BASED UPON THE BEST EVIDENCE OBTAINABLE, BUT IS ARBITRARY, SPECULATIVE,
HYPOTHETICAL, GROSSLY EXAGGERATED AND WITHOUT FACTUAL BASES.

II. THE TAX COURT ERRED IN HOLDING THAT THE TICKETS ISSUED FOR EXCESS BAGGAGE ARE BILLS OF
LADING SUBJECT TO THE DOCUMENTARY STAMP TAX.

III. THE TAX COURT ERRED IN NOT FINDING AND DECLARING SECTION 127 OF REGULATION NO. 26 OF THE
DEPARTMENT OF FINANCE UNCONSTITUTIONAL.

IV. THE TAX COURT ERRED IN HOLDING THE PETITIONER LIABLE AND REQUIRING IT TO PAY THE TAX
ASSESSMENT OF P15,704.16.

In support of its first assignment of error, the petitioner-appellant claims that the computation made by the
respondent is not based upon the best available evidence, but on mere presumptions. This claim is devoid of
merit. The agent of the Bureau of Internal Revenue who investigated the petitioner's books of accounts found it
impossible to count one by one the freight tickets contained in used booklets dumped inside the petitioner's
bodega, because the booklets were so numerous and most of them were either torn or destroyed. The procedure
followed by said agent, which is the average method, in ascertaining the total number of freight tickets used
during the period under review, can not be improved because an actual count of the freight tickets is practically
impossible. The average method is the only way by which the agent could determine the number of booklets used
during the period in question.

The agent also correctly assumed that the value of the goods covered by each freight ticket is not less than P5.00.
It is a common practice of passengers in the rural areas not to secure receipts for cargoes of small value and to
demand receipts only for valuable cargo (Interprovincial Autobus Co., Inc. vs. Collector of Internal Revenue, G.R.
No. L-6741, January 31, 1956.) If the freight tickets were issued, the baggage carried must have been valuable
enough.

On the other hand, it was the duty of petitioner to present evidence to show inaccuracy in the above method of
assessment (Interprovincial Autobus Co., Inc. vs. Collector, supra; Perez vs. C.T.A., G.R. No. L-9193, May 29,
1957; Perez vs. C.T.A., et al., G.R. No. L-10507, May 30, 1958; Government of P. I. vs. Monte de Piedad, 35 Phil.
42), but it failed to do so. The claim of petitioner that the freight tickets issued by it are not bills of lading subject
to documentary stamp tax must also be dismissed in view of our ruling in the case of Interprovincial Autobus Co.,
Inc. vs. Collector, supra: .
But the claim that freight tickets of bus companies are not 'bills of lading or receipts' within the meaning of the
Documentary Stamp Tax Law is without merit. Bills of Lading, in modern jurisprudence, are not those issued by
masters of vessels alone; they now comprehend all forms of transportation, whether by sea or land, and includes
the receipts for cargo transported.

The term 'bill of lading' is frequently defined, especially by the older authorities as a writing signed by the master
of a vessel acknowledging the receipts of goods on board to be transported to a certain port and there delivered to
a designated person or on his order. This definition was formulated at a time when goods were principally
transported by sea and, while adequate in view of the conditions existing at that early day, is too narrow to suit
present conditions. As comprehending all methods of transportation, a bill of lading may be defined as a written
acknowledgment of the receipt of goods and an agreement to transport and to deliver them at a specified place to
a person named or on his order. Such instruments are sometimes called 'shipping receipts,' 'forwarders' receipts,'
and 'receipts for transportation." The designation, however, is not material, and neither is the form of the
instrument. If it contains an acknowledgment by the carrier of the receipt of goods for transportation, it is, in legal
effect, a bill of lading." (9 Am. Jur. 662, emphasis supplied) .

Section 227 of the National Internal Revenue Code imposes the tax on receipts for goods or effects shipped from
one port or place to another port or place in the Philippines. The use of the word place after port and of the, word
'receipt' shows that the receipts for goods shipped on land are included.

As its third assignment of error, the petitioner-appellant questions the validity of Section 127 of Regulation No. 26,
insofar as it provides that chits, memoranda and other papers not in the usual commercial form of bill of lading,
when used by the common carrier in the transportation of goods for the collection of fares, are to be considered
bills of lading subject to documentary stamp tax, alleging that said section is beyond the powers of the Secretary
of Finance, which are contained in Section 388 of the Tax Code. This argument should also be dismissed for lack
of merit. As the Solicitor General correctly argues the validity of Section 127 of Regulation No. 26 should be
upheld under the principle of legislative approval by reenactment. Section 127 of said regulation sought to
implement Section 1449 (q) and (r) of the Revised Administrative Code, and the latter provisions were reenacted in
Section 227 of the National Internal Revenue Code. Section 127 is in the same Regulations as Section 121. We are
quoting hereunder a portion of the decision of this Court in the case of Interprovincial Autobus Co., Inc. vs.
Collector, supra, to sustain our ruling that the third assignment of error in the case at bar should be dismissed:

Another reason for sustaining the validity of the regulation, may be found in the principle of legislative approval
by reenactment. The regulations were approved on September 16, 1924. When the National Internal Revenue
Code was approved on February 18, 1939, the same provisions on stamp tax, bills of lading and receipts were
reenacted. There is a presumption that the legislature reenacted the law on the tax with full knowledge of the
contents of the regulations then in force regarding bills of lading and receipts, and that it approved or confirmed
them because they carry out the legislative purpose.

The fourth assignment of error, being only a consequence of the first three, the same should also be dismissed.

WHEREFORE, the decision appealed from should be affirmed, with costs against petitioner-appellant.
SWEET LINES, INC., petitioner, vs.HON. BERNARDO TEVES, Presiding Judge, CFI of Misamis Oriental
Branch VII, LEOVIGILDO TANDOG, JR., and ROGELIO TIRO, respondents.

FACTS:

 Atty. Leovigildo Tandog and Rogelio Tiro bought tickets for Tagbilaran City via the port of Cebu
 Since many passengers were bound for Surigao, M/S "Sweet Hope would not be proceeding to Bohol
 They went to the proper brancg office and was relocated to M/S "Sweet Town" where they were forced to
agree "to hide at the cargo section to avoid inspection of the officers of the Philippine Coastguard." and
they were exposed to the scorching heat of the sun and the dust coming from the ship's cargo of corn
grits and their tickets were not honored so they had to purchase a new one
 They sued Sweet Lines for damages and for breach of contract of carriage before the Court of First
Instance of Misamis Oriental who dismissed the compalitn for improper venue
 A motion was premised on the condition printed at the back of the tickets -dismissed
 instant petition for prohibition for preliminary injunction

ISSUE: W/N a common carrier engaged in inter-island shipping stipulate thru condition printed at the back of
passage tickets to its vessels that any and all actions arising out of the contract of carriage should be filed only in
a particular province or city

HELD:

There is no question that there was a valid contract of carriage entered into by petitioner and private respondents
and that the passage tickets, upon which the latter based their complaint, are the best evidence thereof. All the
essential elements of a valid contract, i.e., consent, cause or consideration and object, are present. As held in
Peralta de Guerrero, et al. v. Madrigal Shipping Co., Inc., 15

It is a matter of common knowledge that whenever a passenger boards a ship for transportation from one place to
another he is issued a ticket by the shipper which has all the elements of a written contract, Namely: (1) the
consent of the contracting parties manifested by the fact that the passenger boards the ship and the shipper
consents or accepts him in the ship for transportation; (2) cause or consideration which is the fare paid by the
passenger as stated in the ticket; (3) object, which is the transportation of the passenger from the place of
departure to the place of destination which are stated in the ticket.

It should be borne in mind, however, that with respect to the fourteen (14) conditions — one of which is
"Condition No. 14" which is in issue in this case — printed at the back of the passage tickets, these are commonly
known as "contracts of adhesion," the validity and/or enforceability of which will have to be determined by the
peculiar circumstances obtaining in each case and the nature of the conditions or terms sought to be enforced.
For, "(W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto, ...
there are certain contracts almost all the provisions of which have been drafted only by one party, usually a
corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the
signing of his signature or his 'adhesion' thereto. Insurance contracts, bills of lading, contracts of make of lots on
the installment plan fall into this category" 16

By the peculiar circumstances under which contracts of adhesion are entered into — namely, that it is drafted
only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party, in this
instance the passengers, private respondents, who cannot change the same and who are thus made to adhere
thereto on the "take it or leave it" basis.
Considered in the light Of the foregoing norms and in the context Of circumstances Prevailing in the inter-island
ship. ping industry in the country today, We find and hold that Condition No. 14 printed at the back of the
passage tickets should be held as void and unenforceable for the following reasons first, under circumstances
obligation in the inter-island ship. ping industry, it is not just and fair to bind passengers to the terms of the
conditions printed at the back of the passage tickets, on which Condition No. 14 is Printed in fine letters, and
second, Condition No. 14 subverts the public policy on transfer of venue of proceedings of this nature, since the
same will prejudice rights and interests of innumerable passengers in different s of the country who, under
Condition No. 14, will have to file suits against petitioner only in the City of Cebu.
Condition No. 14 is subversive of public policy on transfers of venue of actions. For, although venue may be
changed or transferred from one province to another by agreement of the parties in writing t to Rule 4, Section 3,
of the Rules of Court, such an agreement will not be held valid where it practically negates the action of the
claimants, such as the private respondents herein. The philosophy underlying the provisions on transfer of venue
of actions is the convenience of the plaintiffs as well as his witnesses and to promote 21 the ends of justice.
Considering the expense and trouble a passenger residing outside of Cebu City would incur to prosecute a claim
in the City of Cebu, he would most probably decide not to file the action at all. The condition will thus defeat,
instead of enhance, the ends of justice. Upon the other hand, petitioner has branches or offices in the respective
ports of call of its vessels and can afford to litigate in any of these places. Hence, the filing of the suit in the CFI of
Misamis Oriental, as was done in the instant case, will not cause inconvenience to, much less prejudice,
petitioner.
 Ong Yiu v. Court of Appeals

FACTS:

On august 26, 1967, Ong Yiu was a fare paying passenger of respondent PAL from Mactan, Cebu to Butuan City
wherein he was scheduled to attend a trial. As a passenger, he checked in one piece of luggae, blue maleta for
which he was issued a claim ticket. Upon arrival at Butuan City, petitioner claimed his luggage but it could not be
found. PAL Butuan sent a message to PAL Cebu which in turn sent a message to PAL Manila that same afternoon.
PAL Manila advised PAL Cebu that the luggage has been over carried to Manila and that it would be forwarded to
PAL Cebu that same day. PAL Cebu then advised PAL Butuan that the luggage will be forwarded the following day,
on scheduled morning flight. This message was not received by PAL Butuan as all the personnel had already gone
for the day. Meanwhile, Ong Yiu was worried about the missing luggage because it contained vital documents
needed for the trial the next day so he wired PAL Cebu demanding delivery of his luggage before noon that next
day or he would hold PAL liable for damages based on gross negligence. Early morning, petitioner went to the
Butuan Airport to inquire about the luggage but did not wait for the arrival of the morning flight at 10:00am.
which carried his luggage. A certain Dagorro, a driver of a colorum car, who also used to drive the petitioner
volunteered to take the luggage to the petitioner. He revelaed that the documents were lost. Ong Yiu demanded
from PAL Cebu actual and compensatory damages as an incident of breach of contract of carriage.

ISSUES:

1. Whether or not PAL is guilty of only simple negligence and not gross negligence?
2. Whether the doctrine of limited liability doctrine applies in the instant case?

HELD:

1. PAL had not acted in bad faith. It exercised due diligence in looking for petitioner’s luggage which had
been miscarried. Had petitioner waited or caused someone to wait at the airport for the arrival of the morning
flight which carried his luggage, he would have been able to retrieve his luggage sooner. In the absence of a
wrongful act or omission or fraud, the petitioner is not entitled to moral damages. Neither is he entitled to
exemplary damages absent any proof that the defendant acted in a wanton, fraudulent, reckless manner.

2. The limited liability applies in this case. On the presumed negligence of PAL, its liability for the loss
however, is limited on the stipulation written on the back of the plane ticket which is P100 per baggage. The
petitioner not having declared a greater value and not having called the attention of PAL on its true value and paid
the tariff therefore. The stipulation is printed in reasonably and fairly big letters and is easily readable. Moreso,
petitioner had been a frequent passenger of PAL from Cebu to Butuan City and back and he being a lawyer and a
businessman, must be fully aware of these conditions.
 JOSE MENDOZA, plaintiff-appellant, vs. PHILIPPINE AIR LINES, INC., defendant-appellee.

The present appeal by plaintiff Jose Mendoza from the decision of the Court of First Instance of Camarines Sur,
has come directly to this Tribunal for the reason that both parties, appellant and appellee, accepted the findings
of fact made by the trial court and here raise only questions of law. On our part, we must also accept said
findings of fact of the lower court.

In the year 1948, appellant Jose Mendoza was the owner of the Cita Theater located in the City of Naga,
Camarines Sur, where he used to exhibit movie pictures booked from movie producers or film owners in Manila.
The fiesta or town holiday of the City of Naga, held on September 17 and 18, yearly, was usually attended by a
great many people, mostly from the Bicol region, especially since the Patron Saint Virgin of Peña Francia was
believed by many to be miraculous. As a good businessman, appellant, taking advantage of these circumstances,
decided to exhibit a film which would fit the occasion and have a special attraction and significance to the people
attending said fiesta. A month before the holiday, that is to say, August 1948, he contracted with the LVN
pictures, Inc., a movie producer in Manila for him to show during the town fiesta the Tagalog film entitled "Himala
ng Birhen" or Miracle of the Virgin. He made extensive preparations; he had two thousand posters printed and
later distributed not only in the City of Naga but also in the neighboring towns. He also advertised in a weekly of
general circulation in the province. The posters and advertisement stated that the film would be shown in the Cita
theater on the 17th and 18th of September, corresponding to the eve and day of the fiesta itself.

In pursuance of the agreement between the LVN Pictures Inc. and Mendoza, the former on September 17th, 1948,
delivered to the defendant Philippine Airlines (PAL) whose planes carried passengers and cargo and made regular
trips from Manila to the Pili Air Port near Naga, Camarines Sur, a can containing the film "Himala ng Birhen"
consigned to the Cita Theater. For this shipment the defendant issued its Air Way Bill No. 317133 marked Exhibit
"1". This can of films was loaded on flight 113 of the defendant, the plane arriving at the Air Port at Pili a little
after four o'clock in the afternoon of the same day, September 17th. For reasons not explained by the defendant,
but which would appear to be the fault of its employees or agents, this can of film was not unloaded at Pili Air
Port and it was brought ba to Manila. Mendoza who had completed all arrangements for the exhibition of the film
beginning in the evening of September 17th, to exploit the presence of the big crowd that came to attend the town
fiesta, went to the Air Port and inquired from the defendant's station master there about the can of film. Said
station master could not explain why the film was not unloaded and sent several radiograms to his principal in
Manila making inquiries and asking that the film be sent to Naga immediately. After investigation and search in
the Manila office, the film was finally located the following day, September 18th, and then shipped to the Pili Air
Port on September 20th. Mendoza received it and exhibited the film but he had missed his opportunity to realize a
large profit as he expected for the people after the fiesta had already left for their towns. To recoup his losses,
Mendoza brought this action against the PAL. After trial, the lower court found that because of his failure to
exhibit the film "Himala ng Birhen" during the town fiesta, Mendoza suffered damages or rather failed to earn
profits in the amount of P3,000.00, but finding the PAL not liable for said damages, dismissed the complaint.

To avoid liability, defendant-appellee, called the attention of the trial court to the terms and conditions of
paragraph 6 of the Way Bill printed on the back thereof which paragraph reads as follows:

6. The Carrier does not obligate itself to carry the Goods by any specified aircraft or on a specified time. Said
Carrier being hereby authorized to deviate from the route of the shipment without any liability therefor.

It claimed that since there was no obligation on its part to carry the film in question on any specified time, it
could not be held accountable for the delay of about three days. The trial court, however, found and held that
although the defendant was not obligated to load the film on any specified plane or on any particular day, once
said can film was loaded and shipped on one of its planes making trip to Camarines, then it assumed the
obligation to unload it at its point of destination and deliver it to the consignee, and its unexplained failure to
comply with this duty constituted negligence. If however found that fraud was not involved and that the defendant
was a debtor in good faith.

The trial court presided over by Judge Jose N. Leuterio in a well-considered decision citing authorities,
particularly the case of Daywalt vs. Corporacion de PP. Agustinos Recoletos, 39 Phil. 587, held that not because
plaintiff failed to realize profits in the sum of P3,000.00 due to the negligence of the defendant, should the latter
be made to reimburse him said sum. Applying provisions of Art. 1107 of the Civil Code which provides that losses
and those foreseen, or which might have been foreseen, at the time of constituting the obligation, and which are a
necessary consequence of the failure to perform it, the trial court held that inasmuch as these damages suffered
by Mendoza were not foreseen or could not have been foreseen at the time that the defendant accepted the can of
film for shipment, for the reason that neither the shipper LVN Pictures Inc. nor the consignee Mendoza had called
its attention to the special circumstances attending the shipment and the showing of the film during the town
fiesta of Naga, plaintiff may not recover the damages sought.

Counsel for appellant insists that the articles of the Code of Commerce rather than those of the Civil Code should
have been applied in deciding this case for the reason that the shipment of the can of film is an act of commerce;
that the contract of transportation in this case should be considered commercial under Art. 349 of the Code of
Commerce because it only involves merchandise or an object of commerce but also the transportation company,
the defendant herein, was a common carrier, that is to say, customarily engaged in transportation for the public,
and that although the contract of transportation was not by land or waterways as defined in said Art. 349,
nevertheless, air transportation being analogous to land and water transportation, should be considered as
included, especially in view of the second paragraph of Art. 2 of the same Code which says that transactions
covered by the Code of Commerce and all others of analogous character shall be deemed acts of commerce. The
trial court, however, disagreed to this contention and opined that air transportation not being expressly covered
by the Code of Commerce, cannot be governed by its provisions.

We believe that whether or not transportation by air should be regarded as a commercial contract under Art. 349,
would be immaterial in the present case, as will be explained later. Without making a definite ruling on the civil or
commercial nature of transportation by air, it being unnecessary, we are inclined to believe and to hold that a
contract of transportation by air may be regarded as commercial. The reason is that at least in the present case
the transportation company (PAL) is a common carrier; besides, air transportation is clearly similar or analogous
to land and water transportation. The obvious reason for its non-inclusion in the Code of Commerce was that at
the time of its promulgation, transportation by air on a commercial basis was not yet known. In the United Sates
where air transportation has reached its highest development, an airline company engaged in the transportation
business is regarded as a common carrier.

The principles which govern carriers by other means, such as by railroad or motor bus, govern carriers by aircraft.
6 Am. Jur., Aviation, Sec. 56, p. 33.

When Aircraft Operator is Common Carrier. — That aircraft and the industry of carriage by aircraft are new is no
reason why one in fact employing aircraft as common-carrier vehicles should not be classified as a common
carrier and charged with liability as such. There can be no doubt, under the general law of common carriers, that
those air lines and aircraft owners engaged in the passenger service on regular schedules on definite routes, who
solicit the patronage of the traveling public, advertise schedules for routes, time of leaving, and rates of fare, and
make the usual stipulation as to baggage, are common carriers by air. A flying service company which, according
to its printed advertising, will take anyone anywhere at any time, though not operating on regular routes or
schedules, and basing its charges not on the number of passengers, but on the operating cost of the plane per
mile, has been held to be a common carrier. It is not necessary, in order to make one carrying passengers by
aircraft a common carrier of passengers that the passengers can be carried from one point to another; the status
and the liability as a common carrier may exist notwithstanding the passenger's ticket issued by an airplane
carrier of passengers for hire contains a statement that it is not a common carrier, etc., or a stipulation that it is
to be held only for its proven negligence. But an airplane owner cannot be classed as a common carrier of
passengers unless he undertakes, for hire, to carry all persons who apply for passage indiscriminately as long as
there is room and no legal excuse for refusing. . . . 6 Am. Jur., Aviation, Sec. 58, pp. 34-35.

The rules governing the business of a common carrier by airship or flying machine may be readily assimilated to
those applied to other common carriers. 2 C.J.S., 1951, Cumulative Pocket Part, Aerial Navigation, Sec. 38, p. 99.

The test of whether one is a common carrier by air is whether he holds out that he will carry for hire, so long as
he has room, goods for everyone bringing goods to him for carriage, not whether he is carrying as a public
employment or whether he carries to a fixed place. (Ibid., Sec. 39, p. 99.)

Appellant contends that Art. 358 of the Code of Commerce should govern the award of the damages in his favor.
Said article provides that if there is no period fixed for the delivery of the goods, the carrier shall be bound to
forward them in the first shipment of the same or similar merchandise which he may make to the point of delivery,
and that upon failure to do so, the damages caused by the delay should be suffered by the carrier. This is a
general provision for ordinary damages and is no different from the provisions of the Civil Code, particularly Art.
1101 thereof, providing for the payment of damages caused by the negligence or delay in the fulfillment of one's
obligation. Even applying the provisions of the Code of Commerce, as already stated, the pertinent provisions
regarding damages only treats of ordinary damages or damages in general, not special damages like those suffered
by the plaintiff herein. Article 2 of the Code of Commerce provides that commercial transactions are to be
governed by the provisions of the Code of Commerce, but in the absence of applicable provisions, they will be
governed by the usages of commerce generally observed in each place; and in default of both, by those of the Civil
Law. So that assuming that the present case involved a commercial transaction, still inasmuch as the special
damages herein claimed finds no applicable provision in the Code of Commerce, neither has it been shown that
there are any commercial usages applicable thereto, then in the last analysis, the rules of the civil law would have
to come into play. Under Art. 1107 of the Civil Code, a debtor in good faith like the defendant herein, may be held
liable only for damages that were foreseen or might have been foreseen at the time the contract of the
transportation was entered into. The trial court correctly found that the defendant company could not have
foreseen the damages that would be suffered by Mendoza upon failure to deliver the can of film on the 17th of
September, 1948 for the reason that the plans of Mendoza to exhibit that film during the town fiesta and his
preparations, specially the announcement of said exhibition by posters and advertisement in the newspaper, were
not called to the defendant's attention.

In our research for authorities we have found a case very similar to the one under consideration. In the case of
Chapman vs. Fargo, L.R.A. (1918 F) p. 1049, the plaintiff in Troy, New York, delivered picture films to the
defendant Fargo, an express company, consigned and to be delivered to him in Utica. At the time of the shipment
the attention of the express company was called to the fact that the shipment involved motion picture films to be
exhibited in Utica, and that they should be sent to their destination, rush. There was delay in their delivery and it
was found that the plaintiff because of his failure to exhibit the film in Utica due to the delay suffered damages or
loss of profits. But the highest court in the State of New York refused to award him special damages. Said
appellate court observed:

But before defendant could be held to special damages, such as the present alleged loss of profits on account of
delay or failure of delivery, it must have appeared that he had notice at the time of delivery to him of the
particular circumstances attending the shipment, and which probably would lead to such special loss if he
defaulted. Or, as the rule has been stated in another form, in order to impose on the defaulting party further
liability than for damages naturally and directly, i.e., in the ordinary course of things, arising from a breach of
contract, such unusual or extraordinary damages must have been brought within the contemplation of the parties
as the probable result of a breach at the time of or prior to contracting. Generally, notice then of any special
circumstances which will show that the damages to be anticipated from a breach would be enhanced has been
held sufficient for this effect.

As may be seen, that New York case is a stronger one than the present case for the reason that the attention of
the common carrier in said case was called to the nature of the articles shipped, the purpose of shipment, and the
desire to rush the shipment, circumstances and facts absent in the present case.

But appellants now contends that he is not suing on a breach of contract but on a tort as provided for in Art.
1902 of the Civil Code. We are a little perplexed as to this new theory of the appellant. First, he insists that the
articles of the Code of Commerce should be applied; that he invokes the provisions of said Code governing the
obligations of a common carrier to make prompt delivery of goods given to it under a contract of transportation.
Later, as already said, he says that he was never a party to the contract of transportation and was a complete
stranger to it, and that he is now suing on a tort or violation of his rights as a stranger (culpa aquiliana). If he
does not invoke the contract of carriage entered into with the defendant company, then he would hardly have any
leg to stand on. His right to prompt delivery of the can of film at the Pili Air Port stems and is derived from the
contract of carriage under which contract, the PAL undertook to carry the can of film safely and to deliver it to
him promptly. Take away or ignore that contract and the obligation to carry and to deliver and the right to prompt
delivery disappear. Common carriers are not obligated by law to carry and to deliver merchandise, and persons
are not vested with the right of prompt delivery, unless such common carriers previously assume the obligation.
Said rights and obligations are created by a specific contract entered into by the parties. In the present case, the
findings of the trial court which as already stated, are accepted by the parties and which we must accept are to
the effect that the LVN Pictures Inc. and Jose Mendoza on one side, and the defendant company on the other,
entered into a contract of transportation. (p. 29, Rec. on Appeal). One interpretation of said finding is that the LVN
Pictures Inc. through previous agreement with Mendoza acted as the latter's agent. When he negotiated with the
LVN Pictures Inc. to rent the film "Himala ng Birhen" and show it during the Naga town fiesta, he most probably
authorized and enjoined the Picture Company to ship the film for him on the PAL on September 17th. Another
interpretation is that even if the LVN Pictures Inc. as consignor of its own initiative, and acting independently of
Mendoza for the time being, made Mendoza as consignee, a stranger to the contract if that is possible,
nevertheless when he, Mendoza, appeared at the Pili Air Port armed with the copy of the Air Way Bill (Exh. 1)
demanding the delivery of the shipment to him, he thereby made himself a party to the contract of the
transportation. The very citation made by appellant in his memorandum supports this view. Speaking of the
possibility of a conflict between the order of the shipper on the one hand and the order of the consignee on the
other, as when the shipper orders the shipping company to return or retain the goods shipped while the consignee
demands their delivery, Malagarriga in his book Codigo de Comercio Comentado, Vol. I, p. 400, citing a decision of
Argentina Court of Appeals on commercial matters, cited by Tolentino in Vol. II of his book entitled
"Commentaries and Jurisprudence on the Commercial Laws of the Philippines" p. 209, says that the right of the
shipper to countermand the shipment terminates when the consignee or legitimate holder of the bill of lading
appears with such bill of lading before the carrier and makes himself a party to the contract. Prior to that time, he
is stranger to the contract.

Still another view of this phase of the case is that contemplated in Art. 1257, paragraph 2, of the old Civil Code
which reads thus:

Should the contract contain any stipulation in favor of a third person, he may demand its fulfillment, provided he
has given notice of his acceptance to the person bound before the stipulation has been revoked.

Here, the contract of carriage between the LVN Pictures Inc. and the defendant carrier contains the stipulations of
the delivery to Mendoza as consignee. His demand for the delivery of the can of film to him at the Pili Air Port may
be regarded as a notice of his acceptance of the stipulation of the delivery in his favor contained in the contract of
carriage, such demand being one of the fulfillment of the contract of carriage and delivery. In this case he also
made himself a party to the contract, or at least has come to court to enforce it. His cause of action must
necessarily be founded on its breach.

One can readily sympathize with the appellant herein for his loss of profits which he expected to realize. But he
overlooked the legal angle. In situations like the present where failure to exhibit films on a certain day would spell
substantial damages or considerable loss of profits, including waste of efforts on preparations and expenses
incurred in advertisements, exhibitors, for their security, may either get hold of the films well ahead of the time of
exhibition in order to make allowance for any hitch in the delivery, or else enter into a special contract or make a
suitable arrangement with the common carrier for the prompt delivery of the films, calling the attention of the
carrier to the circumstances surrounding the case and the approximate amount of damages to be suffered in case
of delay.
Finding no reversible error in the decision appealed from, the same is hereby affirmed. No pronouncement as to
costs. So ordered.

MACAM vs. COURT OF APPEALS GR No. 125524; August 25, 1999

Labels: Case Digests, Commercial Law

Facts: Benito Macam, doing business under name Ben-Mac Enterprises, shipped on board vessel Nen-Jiang,
owned and operated by respondent China Ocean Shipping Co. through local agent Wallem Philippines Shipping
Inc., 3,500 boxes of watermelon covered by Bill of Lading No. HKG 99012, and 1,611 boxes of fresh mangoes
covered by Bill of Lading No. HKG 99013. The shipment was bound for Hongkong with PAKISTAN BANK as
consignee and Great Prospect Company of Rowloon (GPC) as notify party.

Upon arrival in Hongkong, shipment was delivered by respondent WALLEM directly to GPC, not to PAKISTAN
BANK and without the required bill of lading having been surrendered. Subsequently, GPC failed to pay
PAKISTAN BANK, such that the latter, still in possession of original bill of lading, refused to pay petitioner thru
SOLIDBANK. Since SOLIDBANK already pre-paid the value of shipment, it demanded payment from respondent
WALLEM but was refused. MACAM constrained to return the amount paid by SOLIDBANK and demanded
payment from WALLEM but to no avail.

WALLEM submitted in evidence a telex dated 5 April 1989 as basis for delivering the cargoes to GPC without the
bills of lading and bank guarantee. The telex instructed delivery of various shipments to the respective consignees
without need of presenting the bill of lading and bank guarantee per the respective shipper’s request since “for
prepaid shipt ofrt charges already fully paid.” MACAM, however, argued that, assuming there was such an
instruction, the consignee referred to was PAKISTAN BANK and not GPC.

The RTC ruled for MACAM and ordered value of shipment. CA reversed RTC’s decision.

Issue: Are the respondents liable to the petitioner for releasing the goods to GPC without the bills of lading or
bank guarantee?

Held: It is a standard maritime practice when immediate delivery is of the essence, for shipper to request or
instruct the carrier to deliver the goods to the buyer upon arrival at the port of destination without requiring
presentation of bill of lading as that usually takes time. Thus, taking into account that subject shipment
consisted of perishable goods and SOLIDBANK pre-paid the full amount of value thereof, it is not hard to believe
the claim of respondent WALLEM that petitioner indeed requested the release of the goods to GPC without
presentation of the bills of lading and bank guarantee.

To implement the said telex instruction, the delivery of the shipment must be to GPC, the notify party or real
importer/buyer of the goods and not the PAKISTANI BANK since the latter can very well present the original Bills
of Lading in its possession. Likewise, if it were the PAKISTANI BANK to whom the cargoes were to be strictly
delivered, it will no longer be proper to require a bank guarantee as a substitute for the Bill of Lading. To construe
otherwise will render meaningless the telex instruction. After all, the cargoes consist of perishable fresh fruits and
immediate delivery thereof the buyer/importer is essentially a factor to reckon with.

We emphasize that the extraordinary responsibility of the common carriers lasts until actual or constructive
delivery of the cargoes to the consignee or to the person who has a right to receive them. PAKISTAN BANK was
indicated in the bills of lading as consignee whereas GPC was the notify party. However, in the export invoices
GPC was clearly named as buyer/importer. Petitioner also referred to GPC as such in his demand letter to
respondent WALLEM and in his complaint before the trial court. This premise draws us to conclude that the
delivery of the cargoes to GPC as buyer/importer which, conformably with Art. 1736 had, other than the
consignee, the right to receive them was proper.